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Bed Bath grows beyond expectations

How's this for a deal? You bet $17 on one share of an untested, fledgling stock in a brand-new, superstore retail format. You cross your fingers, hope for the best, and look what happens — 10 years and four stock splits later that original $17 gamble in Bed Bath & Beyond is now worth $552.

Your initial investment has just been multiplied roughly 31 times.

Or look at it another way. In the decade since Bed Bath & Beyond became a public company on June 5, 1992, the stock has grown in value by roughly 42 percent a year on a compounded basis. Try asking Citibank or Chase for that kind of return on your money market account.

In the remarkable journey of the superstore retailer, in the decade since it went public with the sale of stock, Bed Bath & Beyond has made money, lots of it, for anyone who's gone near it — most notably the chain's two co-founders, Warren Eisenberg and Leonard Feinstein, who are now rich men by any measurable standard. In fact, it's one of the two most successful stocks in the entire S&P retail index, beating out even rocket-hot Kohl's.

But it's not as if the company hasn't earned it. In fact, it's one of the most successful retail operations developed in this country in half a century or more — rivaled only by the likes of Wal-Mart and Kohl's.

Consider the following.

  • In the 10 years since going public, its profits have grown by almost 14 times—to $219.6 million last year from just $16.0 million in 1992.

  • It sales have increased from just $217.0 million 10 years ago to almost $3.0 billion last year. If it maintains its current pace of sales growth, it should top $4.0 billion in sales by the end of this year. And it's not just new store openings that are fueling the top-line growth. Same-store sales last year grew by 7.1 percent, during the fourth quarter alone, shot up by 11.9 percent.

  • Ten years ago, the company had just 38 stores in operation, and was still in the process of developing the home furnishings superstore format. Today it has 10 times as many stores, a total of 396, and it's opening new units at an accelerated pace of 88 stores in 2002.

  • And it's rolling across the map like a steamroller. From its early base of nine Northeastern states in 1992, it's expanded into a total of 44 states and Puerto Rico. And it's betting that there's still plenty of room for growth. There are six more states where it's not represented, not to mention Canada. And there are still plenty of opportunities to expand its share of the home goods marketplace as it adds new products to the mix and continues to pull business away from department stores and competitors, like HomePlace, which fall by the wayside.

Along with all that success has come a certain, palpable reserve in the halls of corporate headquarters, almost since the beginning. Publicity is shunned and distrusted. Eisenberg, Feinstein and new president and hands-on manager Steven Temares maintain a relatively low profile in the wake of the company's success. And they never send out a press release beyond the quarterly financial statement that's required by law.

Success is never taken for granted. Indeed, it's almost as if there's a fear it could disappear as quickly as it came.

And not without reason. This Horatio Alger story is all the more remarkable since the complete triumph of Bed Bath & Beyond follows the equally complete failure of an earlier venture led by Eisenberg and Feinstein. Before moving into the specialty home arena, Eisenberg and Feinstein had earlier run Arlan's Department Stores, a regional discounter with 111 units that was forced into bankruptcy in 1971.

The lessons learned from that earlier failure may account for the unique corporate culture that burns at the core of Bed Bath & Beyond with an almost missionary zeal. After operating a highly centralized business in Arlan's, Eisenberg and Feinstein took an opposite tack with their specialty format, putting more and more responsibility, including buying, in the hands of store managers. After operating a no-frills discounter, the pair created a new kind of emporium in which service is paramount.

And after the failure of Arlan's, they created what often appears to be an almost driven environment at Bed Bath & Beyond, a work ethic in which a great performance is never good enough. Laurels are not to be rested on, indeed they're shoved out of sight. A certain watchfulness, a wariness, is built right into the corporate credo, a looking over the shoulder, a healthy distrust of their own success.

And so far it's all paid off. Just take a look at those numbers they put up, quarter after quarter. And wish you'd bought their stock back a decade ago. If you had, you might be down in Hobe Sound now, not reading this at your desk.

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